Do I have to subscribe to a debt balance insurance 

The answer is no. Contrary to the common held view, you do not have to subscribe to a debt balance insurance when you take out a mortgage loan or a personal credit. 

But, first of all, let’s remind what a debt balance insurance is. This form of accidental death insurance covers the outstanding balance of the loan in the event of your death. The insurance is limited to the duration of the loan and the amount paid by the insurer is the outstanding principal balance of the loan on the date of your death. The beneficiaries are the persons designated in the policy (the spouse or the children for example) or the lending institution. Against an additional premium, some companies extend the cover to disability and loss of income.

How much does it cost? 

It is impossible to answer this question because the premium of the debt balance insurance is calculated on a case by case basis. Firstly, it depends on your loan. The higher the capital insured, the higher will be the premium. The duration of the borrowing period and high interest rates may also determine the amount of the premium insurance.

At least, the premium calculation takes into account your risk of death. This risk can be influenced by a wide range of factors: your age at the day of the conclusion of the credit agreement (the more aged you are, the higher will be the premium), if you are a smoker or not, your heath status and if you practice extreme sports or not. 

In some cases, the amount to pay can rise to thousands of euros, especially when you pay the premium at once! In fact, there are three ways of payment: a single premium to be paid when the contract is signed, annual premiums to be paid during the two thirds of the insured period (for example, 13 annual premiums for a 20-year loan) or annual premiums to be paid throughout the duration of the loan.   

Not required but highly recommended 

Why will you subscribe to a debt balance insurance if it is not legally required? If you have already a life insurance and if the amount is enough to cover the loan, it’s not useful. If not, think twice before declining a debt balance insurance. By subscribing such an insurance, you will save your family from having any financial problem after your accidental death. Especially if the amount to be repaid is significant! And don’t forget that debt balance insurance premiums are, under certain conditions, tax-deductible.   

Keep also in mind that you can take out a loan at a more interesting rate if you subscribe to the insurance offered by the bank which grants you a credit.  

So take the time to think about all the aspects, consider the pros and cons and be sure to be well informed before taking a decision in one way or another

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